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A dereliction of duty over $600M in unpaid duties?

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WASHINGTON Where have all the duties gone? And what to do about it?

Some foreign companies have been skipping out on their dumping duty bills, and the federal government thinks it's high time they paid up.

A new report by the Government Accountability Office (GAO) found "substantial shortfalls" in duty collections, and it could lead to changes in how the U.S. collects duties.

In all, $600 million in anti-dumping and countervailing duties dating back to 2001 remain uncollected, the GAO said. But the problem isn't widespread. Instead, it is concentrated among a few products (four products account for about 84 percent of the total amount of uncollected duties) and importers (a relatively small number of importers owe the vast majority of the uncollected duties). Half of the 23,000 unpaid duty bills are less than $309, but the average duty bill is more than $26,000 due to a relatively small number of very large bills.

The problem isn't really a metals-related one. The agriculture and aquaculture industries account for 87 percent of the total, while the steel industry accounts for just 7 percent.

While agricultural products dominate, an attorney for the domestic steel industry pointed out that China is associated with 90 percent of the total amount of uncollected duties.

It's no surprise to David Phelps, president of the American Institute for International Steel, that the steel industry isn't one of the bad guys when it comes to duty collection. "Our guys have been in business forever and we pay the duties," he said.

The products with the greatest amount of duties written off include crawfish tail meat from China (about $10 million), manganese metal from China (about $5 million) and carbon steel plate from Germany (about $4 million).

Getting all $600 million back is unlikely, however. According to U.S. Customs and Border Protection officials, prospects for collecting a sizeable portion of the bills are slim because many of the importers have disappeared, have no assets or have declared bankruptcy.

Several factors contributed to the uncollected duties, the GAO said, urging the government to take more aggressive action to close the loopholes.

Because the U.S. system assesses duties retrospectively, the final amount an importer owes can significantly exceed the initial amount paid when the goods entered the country. The Canadian system, by contrast, collects its duties prospectively.

The government also tends to underestimate the final duty rate on "new shippers" because it bases the rate on as little as one shipment. New shippers accounted for about 40 percent of the uncollected duties.

U.S. Customs also collects minimal information on importers and doesn't conduct background or financial checks, which creates challenges in locating importers and collecting duties.

The GAO set out some options to improve collections. The United States could eliminate the retrospective component of the U.S. collection system. "But there would be tradeoffs," the GAO report said. "Under a retrospective system, the amount of duties finally assessed reflects the actual amount of dumping by the exporter for the period of review. Under a prospective system, the amount of duties assessed may not match the amount of actual dumping or subsidization."

Members of the Senate Finance Committee said that quick action is needed to recover the lost dollars, but provided few specifics. "I will continue to pressure the administration to get its house in order with regard to collecting all duties owed to the U.S. and to report on the duties that go uncollected," Sen. Max Baucus (D., Mont.), committee chairman, said. "American business owners are seeing their businesses undercut by unfair and illegal pricing. We must have an increased emphasis on vigilant homeland security, but Customs must also safeguard America's economic security."

The GAO report put the problem into context, ranking minority member Sen. Chuck Grassley (R., Iowa) said, noting that the problem was with a few bad apples. "Of nearly 27,000 importers subject to anti-dumping or countervailing duties since fiscal year 2001, it seems less than 2 percent have open, unpaid bills," he said. "The bottom line is that we need to do a better job of dealing with the few bad apples."

Sen. Robert C. Byrd (D., W.Va.) said that the so-called Byrd Amendment—the Continued Dumping and Subsidy Offset Act, repealed in 2007—helped the government grasp the magnitude of the losses. "Without the Byrd Amendment, the U.S. government would never have grasped the magnitude of the losses that continue to be incurred because our nation is failing to collect such huge sums from unfair traders. It was only when U.S. industries discovered that they could not collect the duties they were owed under (Byrd) that the immensity of the problem became clear. It is painfully obvious that our government agencies must do more to resolve the complicated issues that contribute to the non-collection of duties," he said.

"The GAO's report recognizes the challenges of collecting anti-dumping duties," Sen. Thad Cochran (R., Miss.) said. "I hope that Congress and the federal agencies in charge of collecting duties will use this report to better protect U.S. industries against unfair trading practices."

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